Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Pan-American Assurance Company Variable Life Separate Account
(Exact Name of Trust)
B. Pan-American Assurance Company
(Name of Depositor)
C. Pan-American Life Center
601 Poydras Street
New Orleans, Louisiana 70130
(Complete address of depositor's principal executive offices)
D. Name and complete address of agent for service:
William Thiel Steen
Vice President, General Counsel and Corporate Secretary
Pan-American Life Insurance Company
Corporate Legal, 12th Floor
601 Poydras Street
New Orleans, Louisiana 70130
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
E. Flexible Premium Adjustable Variable Life Insurance Policy
(Title and amount of securities being registered)
F. Proposed maximum aggregate offering price to the public of the
securities being registered:
Continuous offering
G. Amount of Filing Fee: Not Applicable
H. Approximate date of proposed public offering:
As soon as practicable after the effective date of this filing.
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ------------ ------------------------------
1(a) Other Information
(b) The Flexible Premium Adjustable Variable Life Insurance Policy
2 Other Information - Pan-American
3 Not Applicable
4 Other Information
5 Other Information
6(a) Not Applicable
(b) Not Applicable
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 Purchases; Separate Account and Separate Account Fund Choices;
Access to Your Cash Surrender Value
11 Separate Account and Separate Account Fund Choices
12 Separate Account and Separate Account Fund Choices
13 Expenses
14 Purchases
15 Purchases
16 Purchases; Separate Account and Separate Account Fund Choices
17 Access to Your Cash Surrender Value
18 Access to Your Cash Surrender Value
19 Reports to Owners
20 Not Applicable
21 Access to Your Cash Surrender Value
22 Not Applicable
23 Not Applicable
24 Other Information
25 Other Information - Pan-American
26 Expenses
27 Other Information - Pan-American
28 Other Information - Executive Officers and Directors
29 Other Information - Pan-American
30 Other Information - Pan-American
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Other Information
36 Not Applicable
37 Not Applicable
38 Other Information
39 Other Information
40 Not Applicable
41 Not Applicable
42 Not Applicable
43 Not Applicable
44 Purchases
45 Separate Account and Separate Account Fund Choices; Other
Information
46 Purchases; Access to Your Cash Surrender Value
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Other Information; Purchases; Pan-American; The Flexible Premium
Adjustable Variable Life Insurance Policy
52 Investment Options
53 Other Information
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PAN-AMERICAN VARIABLE LIFE SEPARATE ACCOUNT
AND
PAN-AMERICAN ASSURANCE COMPANY
This Prospectus describes the Flexible Premium Adjustable Variable Life
Insurance Policy (Policies) offered by Pan-American Assurance Company
(Pan-American).
The Policy is a Life Insurance Policy and has been designed to be used
to create or conserve one's estate, retirement planning and other insurance
needs of individuals and businesses.
The Policy has 28 investment choices - a Fixed Account and 27 Separate
Account Funds listed below.
When you buy a Policy, to the extent you have selected Separate Account
Funds, you bear the complete investment risk. Your Accumulated Value in the
Policy, when based on the investment experience of the Separate Account Funds,
is variable and may increase or decrease. The duration or amount of the Death
Benefit may be fixed or may vary depending on the investment experience and the
Death Benefit Option selected.
You can put your Premiums into our Fixed Account and/or any of the
following Separate Account Funds:
MFS Variable Insurance Trust
Advised by MFS Management, Inc.
MFS Money Market Series - Initial Class
MFS Total Return Series
MFS Growth With Income Series
MFS Emerging Growth Series
MFS Growth Series
MFS Utilities Series
MFS Mid Cap Growth Series
INVESCO Variable Investment Funds
Advised by Invesco Funds Group, Inc.
Invesco Blue Chip Growth Fund
Invesco Small Company Growth Fund
Invesco International Blue Chip Fund
Invesco Technology Fund
Invesco Health Sciences Fund
Invesco Financial Services Fund
Invesco Dynamics Fund (mid cap growth)
Invesco Endeavor Fund (all cap growth)
Berger Institutional Products Trust
Advised by Berger, LLC
Berger IPT - Large Cap Growth Fund
Berger IPT - Small Company Growth Fund
Berger IPT - International Fund
(sub-advised by Bank of Ireland Asset Management (U.S.), Limited)
Berger IPT - New Generation Fund (mid cap growth)
J.P. Morgan Series Trust II
Advised by J.P. Morgan Investment Management, Inc.
J.P. Morgan Bond Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
J.P. Morgan Small Company Portfolio
J.P. Morgan International Opportunity Portfolio
Dreyfus Investment Portfolios
Advised by Founder Assets Management, LLC
Dreyfus Investment Portfolios - Founders Growth Portfolio
Dreyfus Investment Portfolios - Founders Discovery Portfolio (small value)
Dreyfus Investment Portfolios - Founders Passport Portfolio (small cap growth)
Dreyfus Investment Portfolios - Founders International Equity Portfolio (large
cap growth)
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this Prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information about the Pan-American Flexible
Premium Adjustable Variable Life Insurance Policy. The Securities and Exchange
Commission maintains a website (http://www.sec.gov) that contains information
regarding companies that file electronically with the Commission.
The Policies:
o are not bank deposits
o are not federally insured
o are not endorsed by bank or government agency
o are not guaranteed and may be subject to loss of principal
Date:
TABLE OF CONTENTS
DEFINITIONS....................................................................6
SUMMARY ......................................................................9
The Flexible Premium Adjustable Variable Life Insurance Policy........9
Purchases.............................................................9
Investment Choices....................................................9
Expenses .............................................................9
Death Benefit........................................................11
Taxes ............................................................11
Access to Your Cash Surrender Value..................................11
Other Information....................................................11
PART I - THE VARIABLE LIFE INSURANCE POLICY...................................13
PURCHASES.....................................................................13
Payment of Premiums..................................................13
Allocation of Net Premiums...........................................14
Grace Period.........................................................14
Insufficient Cash Surrender Value....................................15
Reinstatement........................................................15
Right To Refund......................................................16
THE SEPARATE ACCOUNT AND SEPARATE ACCOUNT FUND CHOICES........................16
Substitution and Limitations on Further Investments..................18
Transfers............................................................18
Telephone Transfers..................................................20
Dollar Cost Averaging................................................20
Asset Rebalancing....................................................20
Accumulation Unit Values.............................................20
FIXED ACCOUNT.................................................................21
EXPENSES .....................................................................21
Premium Expense Charges..............................................22
Monthly Deduction ...................................................22
The Cost of Insurance Charge.........................................22
Cost of Insurance Rates .............................................23
Administrative Charge................................................23
Selection and Issue Charge...........................................23
Asset Charge.........................................................23
Rider Charges........................................................23
Surrender Charges....................................................24
Transfer Charge Expenses.............................................24
Taxes ............................................................24
Separate Account Fund Expenses.......................................25
DEATH BENEFIT.................................................................26
Change in Death Benefit Option.......................................27
Change in Specified Amount...........................................28
TAXES .....................................................................28
Life Insurance in General............................................29
Taking a Distribution From Your Policy...............................29
Diversification......................................................29
ACCESS TO YOUR CASH SURRENDER VALUE...........................................30
Full Surrender.......................................................30
Effect of a Partial Surrender on Your Specified Amount...............30
LOANS .....................................................................31
Loan Interest (Charged)..............................................31
Loan Interest (Credited).............................................31
Loan Repayment.......................................................31
OTHER INFORMATION.............................................................32
Pan-American.........................................................32
Riders ............................................................32
Paid-Up Insurance....................................................33
Optional Methods of Settlement.......................................33
Distributors.........................................................34
Suspension of Payments or Transfers..................................34
Ownership............................................................34
Beneficiary..........................................................35
Executive Officers and Directors.....................................36
Voting ............................................................37
Disregard of Voting Instructions.....................................37
Legal Opinions.......................................................38
Federal Tax Status...................................................38
Reports to Owners....................................................42
Legal Proceedings....................................................43
Experts ............................................................43
Financial Statements.................................................44
APPENDIX A
ILLUSTRATIONS OF POLICY VALUES.......................................45
APPENDIX B
EXAMPLES OF CALCULATIONS OF SURRENDER CHARGE . . . . . . . . . . . . 48
DEFINITIONS
Accumulated Value: The sum of your Policy values in the Separate Account Funds,
the Fixed Account and the Loan Account.
Accumulation Unit: A unit of measure used to calculate your Accumulated Value in
the Separate Account Funds.
Age: Issue Age is age nearest birthday on the Policy Date. Attained Age is the
Issue Age plus the number of completed Policy Years.
Beneficiary: The person or persons named in the application or at a later date
to receive the Death Benefit under the Policy or any rider(s).
Business Day: Each day that the New York Stock Exchange and We are open for
business. The Separate Account will be valued each Business Day.
Cash Surrender Value: Your Accumulated Value less any Surrender Charge.
Death Benefit: The amount used to determine the proceeds payable upon the death
of the Insured.
Fixed Account: A portion of the General Account into which you can allocate Net
Premiums or transfer Accumulated Values. It does not share in the investment
experience of the Separate Account.
General Account: Our general investment account, which includes the Fixed
Account and the Loan Account, contains our assets with the exception of the
Separate Account and other segregated asset accounts.
Grace Period: The period we provide you to make a payment of a premium
sufficient to cover the Monthly Deduction when your Cash Surrender Value becomes
insufficient to keep your Policy in force.
Indebtedness: Unpaid Policy loans plus unpaid Policy loan interest.
Insured: The person whose life is insured under the Policy.
Loan Account: An account established within our General Account for any amounts
transferred from the Fixed Account and the Separate Account as a result of
loans. The Loan Account is credited with interest and is not based on the
experience of any Separate Account.
Maturity Date: The Policy Anniversary nearest the Insured's 100th birthday. If
increases in the Specified Amount or other Policy charges result in multiple
Maturity Dates, the Maturity Date will then be modified to be the first of all
such Maturity Dates.
Monthly Anniversary Day: The same day of each month as the Policy Date for each
succeeding month the Policy remains in force. If the Monthly Anniversary Day
falls on a day that is not a Business Day, any Policy transaction due as of that
day will be processed the first Business Day following such date.
Monthly Deduction: The amount we deduct from your Accumulated Value each month
which covers some of the costs associated with your Policy.
Net Premium: We deduct a Premium Expense Charge from each Premium paid. The Net
Premium is the Premium paid less the Premium Expense Charge.
Owner: The person entitled to all the ownership rights under the Policy. If
Joint Owners are named, all references to you or Owner shall mean Joint Owners.
Policy: The Policy includes the basic policy, applications and any riders or
endorsements.
Policy Anniversary: The same month and day as the Policy Date for each
succeeding year the Policy remains in force. If the Policy Anniversary falls on
a day that is not a Business Day, any Policy transaction due as of that day will
be processed the first Business Day following such date.
Policy Date: The Policy Date is the day set by us from which Policy Months and
Policy Anniversaries are dated.
Policy Month: The one-month period from the Policy Date to the same date of the
next month, or from one Monthly Anniversary Day to the next.
Policy Year: The one year period from the Policy Date to the first Policy
Anniversary or from one Policy Anniversary to the next.
Premium: A payment you make towards the Policy and that does not re-pay any
Indebtedness.
Premium Expense Charge: We deduct a Premium Expense Charge from each Premium
Payment. It is your Premium Payment less the Premium Expense Charge which is
allocated to the Fixed Account or Separate Account.
Separate Account: A segregated asset account maintained by us in which a portion
of our assets has been allocated for the Policies as well as other policies.
Separate Account Funds: Those investment options available through the Separate
Account.
Specified Amount: The initial Specified Amount plus each increase to the
Specified Amount and less each decrease to the Specified Amount.
We, Us, Our, and Ours: Pan-American Assurance Company.
You, Your, and Yours: The Owner of the Policy.
SUMMARY
The Flexible Premium Adjustable Variable Life Insurance Policy: The Flexible
Premium Adjustable Variable Life Insurance Policy offered by Pan-American is a
contract between you, the Owner, and Pan-American, a life insurance company.
The Policy provides for life insurance coverage on the person Insured and
provides for the payment of the Death Benefit to your selected Beneficiary upon
the death of the Insured, which generally shall be excludable from the gross
income of the Beneficiary. The Insured can be the same person as the Owner, but
does not have to be.
Under the Policy, the Minimum Initial Premium is due on or before coverage under
a Policy can begin. You may thereafter, subject to certain limitations, make
Premium payments, in any amount and any frequency. The Policy provides an
Accumulated Value, surrender rights, loan privileges and other features
traditionally associated with life insurance.
The Policy can lapse (terminate without value) when the Cash Surrender Value is
insufficient to cover the Monthly Deduction and a Grace Period of 65 days has
expired without an adequate payment being made.
You should consult your Policy for further understanding of its terms and
conditions and for any state-specific provisions and variances that may apply to
your Policy.
Purchases: You can buy the Policy by completing the proper forms. Your
Registered Representative can help you. The Minimum Initial Premium we will
accept will be computed for you with respect to the Specified Amount you have
requested. In some circumstances, we may contact you for additional information
regarding the Insured and may require the Insured to provide us with medical
records, a physician's statement or a complete medical examination.
The Policy is a flexible premium adjustable variable life insurance policy and,
unlike traditional insurance policies, there is no fixed schedule for Premium
payments after the initial premium. Under most circumstances it is anticipated
that you will need to make additional Premium payments, after the initial
premium, to keep the Policy in force. You can arrange with us to make Planned
Premium Payments.
Investment Choices: You may invest in the Fixed Account or in any or all of the
Separate Account Funds which are listed in the "Separate Account and Separate
Account Fund Choices" section below and which are more fully described in the
prospectuses for the Separate Account Funds.
Expenses: The Policy has both insurance and investment features, and there are
costs related to each that reduce the return on your investment.
We deduct a Premium Expense Charge from each Premium payment made. The Premium
Expense Charge is as follows:
Policy Years 1-20: 7.0% of all premiums
Policy Years 21 and later: 4.0% of all premiums
We deduct a charge each month called the Monthly Deduction. The Monthly
Deduction is the sum of:
1. the Cost of Insurance Charge;
2. the Administrative Charge;
3. the Selection and Issue Charge; and
4. the cost for any Policy riders.
Monthly Deductions are made as of the Policy Date and each Monthly Anniversary
Day thereafter.
We deduct a Cost of Insurance Charge as part of the Monthly Deduction. The cost
of insurance is determined separately for the initial Specified Amount and for
all subsequent increases. It will vary depending upon the issue age (for
increases in Specified Amount, it is the Attained Age as of the increase),
gender and risk classification of the Insured and the duration of the segment of
coverage of the Policy.
We deduct an Administrative Charge as part of the Monthly Deduction as follows:
Policy Year 1: $12 each month
Policy Years 2 and later: $10 each month
We deduct a Selection and Issue Charge as part of the Monthly Deduction which is
based upon the Issue Ages (for increases in Specified Amount, it is the Attained
Age as of the increase), gender and rate class of the Insured and the Specified
Amount. The rate drops after the 1st and 20th Policy Years.
We may also make a deduction for any riders as part of the Monthly Deduction.
We deduct an Asset Charge from the Separate Account Funds on a daily basis. The
daily rate is 1/365th of the annual rates, which are as follows:
Policy Years 1-10: 0.75% of the Separate Account
Policy Years 11 and later: 0.25% of the Separate Account
When you make a surrender of some or all of your Accumulated Value, we will
deduct a Surrender Charge. The Surrender Charge depends upon your initial
Specified Amount (plus any increase in Specified Amount), the year of surrender,
Issue Age, gender and rate class. The Surrender Charge is stated in your Policy.
There is a separate Surrender Charge associated with any increase in Specified
Amount.
There is also a Partial Surrender Charge that is based upon a formula but will
never be less than $25.
For each transfer after 12 in a Policy Year, excluding pre-scheduled transfers,
we have reserved the right to assess a transfer fee of $25.
Death Benefit: The amount of the Death Benefit depends on many factors, as
explained on page 26. The actual amount payable to your Beneficiary is the Death
Benefit less any Indebtedness.
At the time of application for a Policy, you designate a Beneficiary who is the
person or persons who will receive the Death Benefit. You may change your
Beneficiary at any time, unless you have designated an irrevocable Beneficiary.
The Beneficiary does not have to be a natural person.
Taxes: Your Policy has been designed to comply with the definition of life
insurance in the Internal Revenue Code. As a result, the Death Benefit paid
under the Policy should generally be excludable from the gross income of the
Beneficiary, however, Qualified plans are typically an exception to this. Your
earnings in the Policy are not taxed until you take them out. The tax treatment
of the loan proceeds and surrender proceeds will depend on whether the Policy is
considered a Modified Endowment Contract (MEC) as defined in the Internal
Revenue Code. Proceeds taken out of a MEC are considered to come from earnings
first and are includable in taxable income. If you are younger than 59 1/2 when
you take proceeds out of a MEC, you may also be subject to a 10% Federal tax
penalty on the earnings withdrawn.
Access to Your Cash Surrender Value: You can terminate your Policy at any time
and we will pay you the Cash Surrender Value of your Policy. After the first
Policy Year, you may surrender a part of your Cash Surrender Value subject to
the requirements of the Policy. When you terminate your Policy or make a Partial
Surrender we will assess a Surrender Charge, and, in the case of a Partial
Surrender, a Partial Surrender Charge may be assessed.
You can also borrow from us using your Policy as collateral.
Other Information:
Right to Examine Policy: Within 20 days (or longer if required in your state)
after the Policy is received, it may be cancelled for any reason by delivering
or mailing it to our Home Office or the Registered Representative through whom
it was purchased. In most states, we will refund to you your Accumulated Value
plus any charges we deducted from your Premium payment. This amount may be more
or less than your Premium payment. If you reside in a state that requires us to
refund your Premium payment, then all of your Premium payments are directed into
the Fixed Account during the Right to Examine Policy Period. In these cases, at
the end of the Right to Examine Policy Period, the Accumulated Value is
reallocated in accordance with your Premium allocation instructions on record.
Who should purchase this life insurance Policy? This life insurance
Policy is designed for individuals and businesses that have a need for death
protection but who also desire to potentially increase the values in their
Policies through investment in the Separate Account Funds.
This life insurance Policy offers individuals the ability to:
1. create or conserve one's estate;
2. supplement retirement income;
3. access Separate Account Funds through loans and
surrenders.
This life insurance Policy offers businesses the ability to:
1. protect the business in the event a key employee dies;
2. provide debt protection for business loans;
3. create a fund for employee benefits, buy-outs and
future business needs.
If you currently own a variable insurance policy on the life of the Insured, you
should consider whether the purchase of the Policy is appropriate.
Also, you should carefully consider whether the Policy should be used to replace
an existing Policy on the life of the Insured.
Inquiries: If you need more information about buying a Policy or if you need
Policy Owner service (such as to change Policy information, to inquire into
Policy values or to make a loan), please contact us at our Home Office:
Pan-American Assurance Company
Pan-American Life Center
601 Poydras Street
New Orleans, Louisiana 70130
1-800-566-1300
Reproposals: You can request that we prepare for you information on
modifications to your Policy once it has been issued to you. These requests can
be made to us at our Home Office directly by you or by your Registered
Representative. We have reserved the right in the Policy to assess up to $100 to
reimburse us for the costs associated with preparing such Reproposals.
PART I
THE VARIABLE LIFE INSURANCE POLICY
The flexible premium adjustable variable life insurance policy ("Policy") is a
contract between you, the Owner, and Pan-American Assurance Company
("Pan-American"), a life insurance company. The Policy provides for life
insurance coverage on the person Insured and has Accumulated Values, a Death
Benefit, surrender rights, loan privileges and other characteristics associated
with traditional and universal life insurance. However, since the Policy is a
variable life insurance policy, the Accumulated Value, to the extent invested in
the Separate Account Funds, will increase or decrease depending upon the
investment experience of those Separate Account Funds selected. The duration or
amount of the Death Benefit may also vary based on the investment performance of
the underlying Separate Account Funds. To the extent you allocated Premium or
Accumulated Value to the Separate Account, you bear the investment risk. If the
Cash Surrender Value less any Indebtedness is insufficient to pay the Monthly
Deductions, the Policy may terminate.
Because the Policy is like traditional and universal life insurance, it provides
a Death Benefit which will be paid to your named Beneficiary. Upon the death of
the Insured, the Death Benefit, less any Indebtedness, is paid to your
Beneficiary. The proceeds should be excludable from the gross income of the
Beneficiary. The tax-free Death Benefit makes this an excellent way to
accumulate money you do not think that you will use in your lifetime and is a
tax-efficient way to provide for those you leave behind. If you need access to
your Cash Surrender Value, you can borrow from the Policy or make a total or
Partial Surrender.
You should consult your Policy for a further understanding of its terms and
conditions and for any state-specific provisions and variances that may apply to
your Policy.
PURCHASES
Payment of Premiums
Premiums are the monies you give us to buy the Policy. The Minimum Initial
Premium is the smallest initial Premium amount that you can submit to us. The
Minimum Initial Premium is equal to one Minimum Monthly Premium as set forth in
your Policy Schedule. The Policy will not take effect until it has been
delivered and the Minimum Initial Premium has been paid prior to death and prior
to any change in health as shown in the application. The Minimum Initial Premium
and all other Premiums are payable at our Home Office. Receipts will be
furnished upon request.
The Policy is a Flexible Premium Policy which allows you to make Premium
payments in any amount and at any time, subject of course to making sufficient
Premium payments to keep the Policy in force. Even though the Policy is
flexible, when you apply for coverage, you can establish a schedule of Planned
Premium Payments. The Planned Premium Payments are selected by you. Therefore,
they will differ from Policy to Policy. You should consult your Registered
Representative about your Planned Premium Payments. The amounts and frequency of
Planned Premium Payments are shown in your Policy Schedule.
The Planned Premium Payment amount and frequency is selected on the application.
The frequency may be quarterly, semi-annually, or annually. A monthly frequency
is available only through pre-authorized check or list bill (i.e., we will not
bill you more than once every three months). The Planned Premium may be changed
at any time, but we reserve the right to limit increases in the Planned Premium.
You will be sent reminder notices for the Planned Premium. In the event Planned
Premiums are not continued, insurance coverage under the Policy and any benefits
provided by rider will be continued in force. Such coverage shall continue until
your Cash Surrender Value is insufficient, as described in the Grace Period
section, below.
For any payment received which immediately increases the net amount at risk, we
reserve the right to return the payment until the Insured receives underwriting
approval from us. All Premium payments must be at least $25.
Allocation of Net Premiums
We will allocate your initial Net Premium to your Policy on the later of the
Policy Date or the date we receive the Premium at our Home Office. The Policy
has a provision called the Right to Examine Policy which allows you to cancel,
for any reason, your Policy within 20 days (or the period required in your
state) after the Policy is first received. If you reside in a state that
requires us to return to you your Premium payment, then all Premium payments
will be directed into the Fixed Account during the Right to Examine Policy
Period. In these cases, at the end of the Right to Examine Policy Period, the
Accumulated Value will be reallocated in proportion to the Premium allocation
instructions on record.
Subsequent Net Premiums will be allocated according to the Premium allocation
instructions on record, and you may change the Premium allocation instructions
at any time by written notice in a form satisfactory to us at our Home Office.
Premium allocation instructions must be at least one-percent (1%) and must be
stated in whole percentages. There are currently no other restrictions, but we
reserve the right to limit availability of Separate Account Fund allocations as
well as allocations to the Fixed Account.
Grace Period
Your Policy will stay in effect as long as your Cash Surrender Value is
considered to be sufficient. The Cash Surrender Value would be considered
insufficient when the Cash Surrender Value less any Indebtedness on any Monthly
Anniversary Day is not sufficient to cover the Monthly Deduction for the next
month. If the Cash Surrender Value of your Policy is determined to be
insufficient, we will mail you a notice. A Grace Period will be granted for the
payment of a Premium sufficient to keep the Policy in force. The Grace Period
will last 65 days from the Monthly Anniversary Day that the Cash Surrender Value
became insufficient.
Notice of the Premium payment required to keep your Policy in force will be
mailed to your last known address. If such Premium payment is not made within
the Grace Period, all coverage under your Policy will terminate without value at
the end of the Grace Period. If a death occurs during the Grace Period, the
proceeds paid will equal the Death Benefit at the start of the Grace Period,
plus any applicable benefits provided by rider, less any Indebtedness and less
overdue Monthly Deductions as of the date of death.
Insufficient Cash Surrender Value
During the Minimum Premium Period (which is usually 5 years, but possibly
shorter in some states and may vary by Issue Age) the Cash Surrender Value will
not be considered insufficient to keep the Policy in force if the sum of the
total Premiums paid to date, less all Partial Surrenders to date and less any
Indebtedness, equals or exceeds the Minimum Monthly Premium (which is set for
each Policy at the time of issue and which is shown on your Policy Schedule)
times the number of months since the Policy Date, including the current month.
In this case, the Policy will remain in effect. If there is a change in riders
or in Specified Amount during the Minimum Premium Period, the minimum Premiums
will be recalculated.
In other circumstances, when the Premium requirements are not met and if the
Cash Surrender Value becomes insufficient, the Policy will terminate subject to
the Grace Period section. Once the policy is terminated there is no coverage
unless we specifically approve reinstatement.
Reinstatement
If your Policy terminates, as provided in the Grace Period section, it may be
reinstated at any time within five years after the date of termination and prior
to the Maturity Date. The reinstatement is subject to:
o receipt of evidence of insurability of the Insured satisfactory to us to
reinstate the base Policy; and
o receipt of evidence of insurability of any person covered by any rider to
reinstate the rider to the Policy; and
o payment of a Premium sufficient to keep the Policy in force for two months;
and
o payment or reinstatement of any Indebtedness against the Policy; and o
reinstatement of the Surrender Charge that was in effect at the time of the
lapse in the Policy.
The payments made to reinstate the Policy will be allocated according to the
last Premium allocation instructions on record. The effective date of the
reinstatement shall be the Monthly Anniversary Day on which we resume assessing
the Monthly Deduction. The Policy will not be allowed to be reinstated if it has
been surrendered for its full Cash Surrender Value.
Right To Refund
To receive the tax treatment accorded life insurance under Federal laws,
insurance under the Policy must initially qualify and continue to qualify as
life insurance under the Internal Revenue Code. To maintain qualification to the
maximum extent permitted by law, we reserve the right to return Premiums you
have paid which we determine will cause any coverage under the Policy to fail to
qualify as life insurance under applicable tax law and any changes in applicable
tax laws or will cause it to become a Modified Endowment Contract (MEC) as
defined in the Internal Revenue Code. Additionally, we reserve the right to make
changes in the Policy or to make distributions to the extent we determine it is
necessary to continue to qualify the Policy as life insurance and to comply with
applicable laws. We will provide you advance written notice of any change.
You may choose to carry the Excess MEC Premium Refund Election on your Policy.
If you choose this election, we will automatically refund any Premium payment
that would otherwise make the Policy a MEC as defined by I.R.C. Section 7702A.
This option does not provide a comprehensive guarantee that your Policy will not
become a MEC, but simply provides an automatic and more efficient mechanism for
returning unintended Premiums. There are certain scenarios which could cause
your Policy to become a MEC despite the presence of this election; for example,
if you were to request decreases in your Specified Amount, or if the tax law
were to change in the future.
However, this election serves as an additional safeguard to maintaining your
Policy's life insurance status as a non-MEC policy.
If you have not elected the Excess MEC Premium Refund Election, and subsequent
Premium payments will cause your Policy to become a MEC, we will NOT notify you
but will allocate your premium as directed. You should consult a tax adviser for
assistance in understanding the tax consequences of your Policy being
categorized as a MEC. (See "Taxes" below.)
THE SEPARATE ACCOUNT AND SEPARATE ACCOUNT FUND CHOICES
We have established a separate account, Pan-American Assurance Company
Variable Life Separate Account (Separate Account) to hold the assets that
underlie the Policies.
The assets of the Separate Account are being held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the Policies are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized and
unrealized) resulting from those assets are credited to or charged against the
Policies and not against any other policies or contracts we may issue.
The Policy offers Separate Account Funds as the underlying investment choices
for the Policy.
You should read this prospectus and the accompanying prospectuses for the
Separate Account Funds carefully before investing. Copies of these prospectuses
will be sent to you with your Policy. Certain portfolios described in the
Separate Account Fund prospectuses may not be available with your Policy. The
Separate Account Fund prospectuses contain more complete information, including
a description of the investment objective, policies, restrictions and risks of
each Separate Account Fund. There can be no assurance that the investment
objectives of these Separate Account Funds will be achieved.
Shares of the Separate Account Funds are offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which are not affiliated with us. Certain portfolios are
also sold directly to qualified plans. The investment managers of the Separate
Account Funds believe that offering their shares in this manner will not be
disadvantageous to you.
The investment objective and policies of certain Separate Account Funds are
similar to the investment objectives and policies of other mutual funds that the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the investment options may be higher or lower than the
results of such other mutual funds. The investment advisers cannot guarantee,
and make no representation, that the investment results of similar funds will be
comparable even though the Separate Account Funds have the same advisers.
We may enter into certain arrangements under which we are reimbursed by the
Separate Account Funds' advisers, distributors, and/or affiliates for the
administrative services which we provide to the Separate Account Funds.
MFS VARIABLE INSURANCE TRUST
Advised by MFS Management, Inc.
MFS Money Market Series - Initial Class
MFS Total Return Series
MFS Growth With Income Series
MFS Emerging Growth Series
MFS Growth Series
MFS Utilities Series
MFS Mid Cap Growth Series
INVESCO VARIABLE INVESTMENT FUNDS
Advised by Invesco Funds Group, Inc.
Invesco Blue Chip Growth Fund
Invesco Small Company Growth Fund
Invesco International Blue Chip Fund
Invesco Technology Fund
Invesco Health Sciences Fund
Invesco Financial Services Fund
Invesco Dynamics Fund (mid cap growth)
Invesco Endeavor Fund (all cap growth)
BERGER INSTITUTIONAL PRODUCT TRUST
Advised by Berger, LLC
Berger IPT - Large Cap Growth Fund
Berger IPT - Small Company Growth Fund
Berger IPT - International Fund
Berger IPT - New Generation Fund (mid cap growth)
J.P. MORGAN SERIES TRUST II
Advised by J.P. Morgan Investment Management, Inc.
J.P. Morgan Bond Portfolio
J.P. Morgan U.S. Disciplined Equity Portfolio
J.P. Morgan Small Company Portfolio
J.P. Morgan International Opportunities Portfolio
DREYFUS INVESTMENT PORTFOLIOS
Advised by Founder Assets Management, LLC
Dreyfus Investment Portfolios - Founders Growth Portfolio
Dreyfus Investment Portfolios - Founders Discovery Portfolio (small value)
Dreyfus Investment Portfolios - Founders Passport Portfolio (small cap growth)
Dreyfus Investment Portfolios - Founders International Equity Portfolio
(large cap growth)
Substitution and Limitations on Further Investments
We may substitute one of the Separate Account Funds you have selected with
another Separate Account Fund. We will not do this without the prior approval of
the Securities and Exchange Commission. We may also limit further investment in
a Separate Account Fund. We will give you notice of our intention to do this.
Transfers
You can make a transfer to or from the Separate Account Funds or to or from the
Fixed Account by providing us with written notice on a form acceptable to us. We
have the right to terminate or modify these transfer provisions. If your state
requires us to return to you your Premium in the event you exercise the Right to
Examine privilege, no transfer may be made before the end of the Right to
Examine Policy Period.
The following apply to any transfer:
o We reserve the right to limit the total amount of transfers from the Fixed
Account. However, you will always be allowed to transfer over the course of
a Policy Year the greater of $500 or 25% of the Fixed Account value as of
the beginning of the Policy Year.
o We reserve the right to assess a maximum charge of $25 per transfer after
the first twelve (12) transfers have been made in any Policy Year. If the
charge is applicable, it will be deducted from the Separate Account Fund
and from the Fixed Account from which the transfer is made on a pro-rata
basis. If there are insufficient funds in those accounts, the charge will
be deducted from the amount transferred. Pre-scheduled transfers will not
be counted in determining the applicability of the Transfer Fee.
o The minimum amount which you can transfer is $50 or your entire value in
the Separate Account Funds or Fixed Account, if it is less.
o The minimum amount you must leave in a Separate Account Fund, unless the
entire amount is being transferred, is $100.
o Your right to make transfers is subject to modification, if we determine,
in our sole opinion, that the exercise of the right by one or more Owners
is, or would be, to the disadvantage of the other Owners. Restrictions may
be applied in any manner reasonably designed to prevent any use of the
transfer right which is considered by us to be to the disadvantage of other
Owners. A modification could be applied to transfers to, or from, one or
more of the Separate Account Funds and could include, but is not limited
to:
1. the requirement of a minimum time period between each transfer;
2. not accepting a transfer request from a party or parties acting
on behalf of more than one Owner; or
3. limiting the dollar amount that may be transferred between Separate
Account Funds by an Owner at any one time. Transfers do not
change the allocation instructions for future Premiums.
The following are pre-scheduled transfers, and they do not count against the
twelve free transaction limit noted above:
1. at the end of the Right to Examine Policy Period to re-allocate your
Accumulated Value in accordance with your premium allocation
instructions on record;
2. pursuant to the Dollar Cost Averaging Option;
3. pursuant to the Asset Rebalancing Option.
Telephone Transfers
You may elect to make transfers by telephone. To elect this option, you must do
so in writing on a form acceptable to us and send it to our Home Office. If
there are Joint Owners, unless we are instructed to the contrary, instructions
will be accepted from either one of the Joint Owners. We will use reasonable
procedures to confirm that all instructions communicated by telephone are
genuine. We may tape record all telephone instructions.
Dollar Cost Averaging
Dollar Cost Averaging allows you to systematically transfer a set amount each
period you select from a source account to any of the Separate Account Funds or
the Fixed Account but not the source account. By allocating amounts on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, you may be less susceptible to the impact of market
fluctuations.
You must have at least $1,000 in the source account to start the program. You
may select the Money Market Fund or the Fixed Account as the source account.
Transfers will be done monthly, quarterly, semi-annually and annually on any
date selected (1st to 28th of the month only) for any period you select. You may
specify a fixed amount or a percentage to be transferred to one or more
accounts.
Dollar Cost Averaging is not available simultaneously with Asset Rebalancing
described below.
It is not available during the Right to Examine Policy Period if your state
requires a return of Premium (see "Right to Examine Policy" above). You may
terminate the program at any time. We reserve the right to change the terms of
the program, or assess a fee for the program, at any time in the future.
Asset Rebalancing
Rebalancing will be done monthly, quarterly, semiannually or annually on a date
selected by you (1st through 28th of the month only). This feature automatically
readjusts the Accumulated Value in the Separate Account Funds requested. The
current Premium allocation election will determine the percentages for
rebalancing the investment portfolios.
Asset rebalancing is not available simultaneously with Dollar Cost Averaging.
Asset Rebalancing is not available during the Right to Examine Policy Period, if
your state requires a return of Premium. You may terminate the program at any
time. We reserve the right to change the terms of the program, or to assess a
fee for the program, at any time in the future.
Accumulation Unit Values
The value of your Policy that is invested in the Separate Account Funds will go
up or down depending upon the investment performance of the Separate Account
Fund(s) you choose. In order to keep track of the value of your Policy allocated
to the Separate Account, we use a unit of measure we call an Accumulation Unit.
(An Accumulation Unit works like a share of a mutual fund.)
Every Business Day we determine the value of an Accumulation Unit for each of
the Separate Account Funds. The value of your contract is affected by the
investment performance of the Separate Account Funds, and the deduction of
charges under the Policy. The value of an Accumulation Unit may go up without
limit and down as far as zero.
Initially, each Accumulation Unit Value for each account was arbitrarily set.
Every Business Day, we determine the value of an Accumulation Unit for each of
the Separate Account Funds by multiplying the Accumulation Unit Value for the
previous period by a factor for the current period. The factor is determined by
dividing the value of a Separate Account Fund share at the end of the current
period (reflecting charges for taxes and credits for dividends) by the value of
a Separate Account Fund share for the previous period and subtracting the Asset
Charge.
We credit and deduct amounts allocated to the Separate Account by increasing or
decreasing the number of Accumulation Units. The number of Accumulation Units to
be credited or deducted is determined by dividing:
1. the dollar amount credited to or deducted from the particular Separate
Account Fund; by
2. the Accumulation Unit Value for the particular Separate Account Fund
at the end of the Business Day during which the allocation is made.
Accumulation Units are credited when Net Premiums are allocated or amounts are
transferred into a Separate Account Fund. Accumulation Units are deducted when
the Monthly Deduction or other charges are assessed or when amounts are
partially surrendered or transferred out of a Separate Account Fund.
FIXED ACCOUNT
You may elect to allocate Net Premiums and Accumulated Values to our Fixed
Account. The Fixed Account forms a portion of our General Account. We guarantee
a minimum yield of 3 percent, compounded monthly. At our discretion, we may
declare a higher crediting rate to be applied to the Fixed Account.
EXPENSES
There are charges and other expenses associated with the Policy that reduce the
return on your investment in the Policy. The charges and expenses are:
Premium Expense Charges
We deduct a Premium Charge from each Premium payment that you make. The Premium
Charge is as follows:
Policy Years 1-20: 7.0% of all Premiums
Policy Years 21 and later: 4.0% of all Premiums
The Premium Charge is to cover some of our costs incurred in selling the Policy
and in issuing it, such as commissions, premium tax, Federal taxes and
administrative costs.
Monthly Deduction
The initial Monthly Deduction is made on the Policy Date but does not include a
Risk Charge. On each Monthly Anniversary Day we make a Monthly Deduction from
the Accumulated Value of your Policy. The Monthly Deduction will be taken on a
pro-rata basis from the Separate Account Funds and the Fixed Account, exclusive
of the Loan Account. The Monthly Deduction is the sum of:
1. the Cost of Insurance Charge;
2. the Administrative Charge;
3. the Selection and Issue Charge; and
4. the cost for any Policy riders.
The Cost of Insurance Charge
This charge compensates us for insurance coverage provided for the month and
certain other expenses. The cost of insurance is determined separately for the
initial Specified Amount and for any subsequent increases.
The cost of insurance for the Insured is calculated as (a), multiplied by the
result of (b) minus (c), where:
(a) is the cost of insurance rate as described in the Cost of Insurance
Rates section;
(b) is the Insured's Death Benefit at the beginning of the Policy month;
and
(c) is the Accumulated Value at the beginning of the Policy month.
If the Insured's Death Benefit is Option 1 and there have been increases in the
Specified Amount, then the Accumulated Value shall be considered first a part of
the initial Specified Amount. If the Accumulated Value exceeds the initial
Specified Amount, it shall then be considered a part of additional Specified
Amount resulting from increases in the order of the increases.
Cost of Insurance Rates
The monthly cost of insurance rate is based on the gender, attained age, Policy
Year and rating class at issue or date of increase of the Insured. Attained age
means age nearest birthday on the prior anniversary of the original amount of
insurance or each increase, as applicable. We reserve the right to adjust the
monthly cost of insurance rates uniformly by class based on changing
expectations. However, the cost of insurance rates will not be greater than
those shown in the Table of Guaranteed Maximum Insurance Rates shown in your
Policy. The guaranteed cost of insurance rates are based on the gender distinct
1980 CSO Smoker or Nonsmoker Mortality Table, Age Nearest Birthday.
Administrative Charge
We assess an Administrative Charge which is twelve dollars ($12) per month in
Policy Year 1, and is ten dollars ($10) per month thereafter. This charge
compensates us for some of our administrative costs.
Selection and Issue Charge
The Selection and Issue Charge is assessed upon each $1,000 of Specified Amount
and is applied separately to the initial Specified Amount and to each increase
in Specified Amount. The charge is based upon the age at issue of the coverage
segment, gender, rate class, the Specified Amount of the coverage segment, and
Policy Year of the coverage segment. This charge compensates us for costs
incurred in administering features of the Policy, underwriting costs, and
certain administrative costs.
Asset Charge
We assess an Asset Charge as part of the daily calculation of the Accumulation
Unit Value for each Separate Account Fund which is expressed on an annual basis
as 0.75% of the Separate Account during the first 10 Policy Years, and 0.25%
thereafter. The daily charge is 0.002055% during the first 10 Policy Years and
0.000685% thereafter. This charge compensates us for some of our administrative
expenses and mortality risks.
Rider Charges
We charge separately for some of the riders that may be attached to the Policy.
We deduct any cost of these riders for a Policy Month as part of the Monthly
Deduction on each Monthly Anniversary Day.
Surrender Charges
We will assess a charge against the Accumulated Value of the Policy if this
Policy is surrendered within the Surrender Charge Period described in the
"Access to Your Cash Surrender Value" section. This charge compensates us for
certain sales and administrative expenses and financial risks. There is an
example of how the Surrender Charges work in Appendix B to this Prospectus.
If there is an increase in the Specified Amount, additional Surrender Charges
will apply to the amount of the increase. These additional Surrender Charges
apply for a Surrender Charge Period following the increase in Specified Amount
which appears on the Policy contract amendment that places the increase in
effect.
If you make a Partial Surrender, a Partial Surrender Charge will be deducted
from the Accumulated Value equal to the greater of: $25 or (a) multiplied by the
ratio, not to exceed 1, of (b) minus (c), all divided by (d), where:
(a) is the Surrender Charge;
(b) is the sum of the Partial Surrender amount and all previous Partial
Surrenders;
(c) is the Exclusion percentage, shown on the Policy Schedule, multiplied
by the Cash Surrender Value; and
(d) is the Cash Surrender Value.
This charge will always be at least $25. After the Partial Surrender is made,
the Surrender Charge will be reduced by the Partial Surrender Charge. Once the
Surrender Charge is reduced below $25, a fee of $25 will be deducted from any
future Partial Surrender amount.
Transfer Charge Expenses
We reserve the right to assess a maximum transfer charge of $25.00 per transfer
after the first twelve (12) transfers have been made. This charge compensates us
for some of the costs associated with processing a transfer.
Pre-scheduled transfers, which include those made pursuant to the Dollar Cost
Averaging Option, the Asset Rebalancing Option, and the Right to Examine Policy
Period, as set forth in the "Transfers" section, will not count towards the
limitation to twelve free transfers.
Taxes
We reserve the right to deduct any taxes levied by any governmental entity
which, at our sole discretion, are determined to have resulted from the
administration of the Policy.
Separate Account Fund Expenses
The annual expenses of the Separate Account Funds for the year ending December
31, 2000, below are based on the date provided by the respective Fund Groups. We
have not independently verified such data. Future expenses may be greater or
less than those shown.
Fund Expenses: (as a percentage of the average daily net assets of a Fund)*
Management Distribution Other Total Fee Waiver Net
Fees Fees (12b-1) Expenses Expenses Reimbursement Expenses
Category Trust Name
Money Market MFS Money Market
Series - Initial Class
Bond J.P. Morgan
Bond Portfolio
Balanced MFS Total Return Series
Invesco Balanced Fund
Invesco Total Return Fund
Large Blend MFS Growth w/Income
Series
Large Growth MFS Emerging Growth
Series
MFS Growth Series
Invesco Blue Chip Growth
Fund
Berger IPT - Large Cap
Growth Fund
Large Value J.P. Morgan U.S. Disciplined
Equity Portfolio
Dreyfus Investment Portfolios -
Founders Growth Portfolio
Small Growth Berger IPT Small Company
Growth Fund
Invesco Small Company Growth
Fund
Small Value Dreyfus Investment Portfolios -
Founders Discovery Portfolio
World Stock J.P. Morgan Small Company
Portfolio
J.P. Morgan International
Opportunities Portfolio
Invesco International Blue Chip
Fund
Foreign Stock Dreyfus Investment Portfolios -
Founders Passport Portfolio
Dreyfus Investment Portfolios -
Founders International Equity
Portfolio
Berger IPT International Fund
Specialty Funds MFS Utilities Series
Invesco Technology Fund
Invesco Health Sciences Fund
Invesco Financial Services Fund
Mid Cap Growth Invesco Dynamics Fund
MFS Mid Cap Growth Series
Berger IPT - New Generation
Fund
All Cap Growth Invesco Endeavor Fund
*Expenses and any applicable footnotes to be filed by amendment.
DEATH BENEFIT
The primary purpose of the Policy is to provide Death Benefit protection on the
life of the Insured. While the Policy is in force, if the Insured dies, the
Beneficiary will receive the Death Benefit less any Indebtedness.
The amount of the Death Benefit depends upon:
1. the Specified Amount;
2. the Death Benefit Option in effect at the time of death;
3. under some circumstances, the Policy's Accumulated Value or the Premiums
paid less Partial Surrenders on the date of the Insured's death; and
4. under some circumstances, your Attained Age.
The Policy provides two Death Benefit Options:
1. Option 1; the Death Benefit includes the Accumulated Value - The Death
Benefit is the Specified Amount and the Death Benefit remains level.
2. Option 2; the Death Benefit is in addition to the Accumulated Value - The
Death Benefit at any time shall be equal to the Accumulated Value plus the
Specified Amount.
If the Death Benefit calculated above is less than the Accumulated Value
multiplied by the applicable percentage set forth below, then the Death Benefit
is increased to the Accumulated Value multiplied by the applicable percentage.
The applicable percentage is a percentage that is based on the attained Age of
the Insured on the Policy Date plus the number of completed Policy Years on the
date that the Death Benefit is to be determined and is equal to the following:
Attained Corridor Attained Corridor
Age Percentage Age Percentage
0-40 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94 101%
95-100 100%
Change in Death Benefit Option
After the first Policy Year, you may, by written request, change between Death
Benefit Options 1 and 2, subject to the following:
1. If the change is from Option 1 to Option 2, the Specified
Amount after such change shall be equal to the Specified
Amount prior to such change less the Accumulated Value on the
date of change.
2. If the change is from Option 2 to Option 1, the Specified
Amount after such change shall be equal to the Specified
Amount prior to such a change plus the Accumulated Value on
the date of the change.
Change in Specified Amount
After the first Policy Year, you may, by written request, change the Specified
Amount of the Policy, subject to the following:
1. In no event shall the Death Benefit be less than the percentage of the
Policy's Accumulated Value as shown in your Policy.
2. Any decrease shall reduce insurance in the following order:
o against insurance provided by the most recent increase;
o against the next most recent increases successively; and
o against insurance provided under the original application.
3. A charge will be made against the Accumulated Value if the decrease occurs
during the first five (5) Policy Years or within five (5) years after an
increase. The charge will be a portion of the Surrender Charge. The charge
will apply to Surrender Charges for increases and the original amount of
insurance in the same order as the reduction in insurance mentioned in (b)
above. The remaining Surrender Charge will be equal to the previous
Surrender Charge less the charge assessed because of the decrease. There
may be a recalculation of the minimum premium as a result of the charge.
4. The Specified Amount in effect after any requested decrease must be at
least as large as the Minimum Specified Amount shown on your Policy
Schedule.
5. Any request for an increase must be applied for on a supplemental
application. Such increase shall be subject to evidence of insurability
satisfactory to us. An increase shall also be subject to the sufficiency of
the Cash Surrender Value, less any Indebtedness, to cover the next Monthly
Deduction. Any increase will become effective on the effective date shown
on the Policy Schedule or the Policy contract amendment. For each increase
in Specified Amount, there is a corresponding schedule of Surrender Charges
which applies to that increase for a Surrender Charge Period stated in the
Policy contract amendment.
TAXES
Note: We have prepared the following information on Federal income taxes as a
general discussion of the subject. It is not intended as tax advice. You should
consult your tax adviser about your own circumstances. We have included an
additional discussion regarding taxes under the section "More Information."
Life Insurance in General
Life insurance, such as this Policy, is a means of providing for death
protection and setting aside money for future needs. Congress recognizes the
importance of such planning and provides special rules in the Internal Revenue
Code (Code) for life insurance.
Simply stated, these rules provide that you will not be taxed on the earnings on
the Cash Surrender Value held in your life insurance Policy until you access
your Cash Surrender Value. Beneficiaries generally are not taxed when they
receive the death proceeds upon the death of the Insured. However, estate taxes
may apply, and Qualified plans are typically an exception to this.
Taking a Distribution from Your Policy
You, as the Owner, will not be taxed on increases in the value of your Policy
until a distribution occurs either as a surrender or as a loan. If your Policy
is a MEC, any loans or surrenders from the Policy will be treated as first
coming from earnings and then from your investment in the Policy. Consequently,
these distributed earnings are included in taxable income.
The Code also provides that any amount received from a MEC which is included in
income may be subject to a 10% penalty. The penalty will not apply if the income
received is:
1. paid on or after the taxpayer reaches age 59 1/2;
2. paid if the taxpayer becomes totally disabled (as that term is defined in
the Code); or
3. in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer.
If your Policy is not a MEC, any surrender proceeds will be treated first as a
recovery of the investment in the Policy and to that extent will not be included
in taxable income. Furthermore, any loan will be treated as Indebtedness under
the Policy and not as a taxable distribution. See "Federal Tax Status" in the
section "More Information" for more details including an explanation of whether
your Policy is a MEC.
Diversification
The Code provides that the underlying investments for a variable life Policy
must satisfy certain diversification requirements in order for the Policy to be
treated as a life insurance contract. We believe that the portfolios are being
managed so as to comply with such requirements.
Under current Federal tax law, it is unclear as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, and not us, would be considered the owner of the shares of the
portfolios. If you are considered the owner of the investments, it will result
in the loss of the favorable tax treatment for the Policy. It is unknown to what
extent owners are permitted to select portfolios, to make transfers among the
portfolios or the number and type of portfolios from which owners may select
without being considered the owner of the shares. If guidance from the Internal
Revenue Service is provided which is considered a new position, the guidance
would generally be applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean that you, as the Owner of the Policy, could be treated as the owner of the
portfolios. Due to the uncertainty in this area, we reserve the right to modify
the Policy in an attempt to maintain favorable tax treatment.
ACCESS TO YOUR CASH SURRENDER VALUE
Full Surrender
You may make a full surrender of your Policy at any time during the lifetime of
the Insured upon written request by you to us. The amount payable on surrender
of the Policy is the Accumulated Value, less any Indebtedness, as of the close
of business on the Business Day of surrender, less any Surrender Charge. The
amount may be paid as a lump sum or under an elected optional Method of
Settlement described below. We reserve the right to defer payments according to
the "Suspension of Payments or Transfers" section described below. If the Policy
is surrendered, coverage is terminated as of the date of surrender.
You may make a Partial Surrender at any time after the first Policy Anniversary
and during the lifetime of the Insured, by your request. There is no minimum
Partial Surrender amount. The maximum surrender amount is an amount not to
exceed the current Cash Surrender Value, less any Indebtedness. When you make a
Partial Surrender, the amount of the Partial Surrender will be deducted from the
Accumulated Value. The deduction will be made from the Separate Account Funds
and the Fixed Account in proportion to your Accumulated Value in each account,
unless you request that the deductions be made from specific Separate Account
Funds. You are restricted to no more than two (2) Partial Surrenders in any
Policy Year.
Effect of a Partial Surrender on Your Specified Amount
Under Death Benefit Option 1 (as discussed in the Death Benefits section above),
the Specified Amount will be reduced by the amount surrendered plus any
Surrender Charge. The remaining Specified Amount must be at least equal to the
Minimum Specified Amount shown on the Policy Schedule of the Contract. The
Partial Surrender will reduce insurance in the same order as shown in the Change
in the Specified Amount section for the decrease in Specified Amount. The
Specified Amount is not reduced for Option 2.
LOANS
You may obtain a loan at any time after the first Policy Anniversary while your
Policy is in force. There is no minimum loan amount. The amount of any loan with
interest to the next Policy Anniversary may not exceed the Cash Surrender Value,
less any Indebtedness, as of the date of the Policy loan. A loan will only be
made upon the proper assignment of your Policy to us with the Policy as the sole
security for the loan. If your total Indebtedness under the Policy exceeds the
Cash Surrender Value, the Policy may terminate without value and, as a result,
there may be Federal tax consequences.
Loan Interest (Charged)
The loan interest rate charged is currently 8%. However, we reserve the right to
adjust the rate charged if it would be tax advantageous to the majority of
Policyholders to do so.
Loan interest is due in arrears on each Policy Anniversary or when the loan is
repaid, if earlier. If loan interest is not paid when due, that amount is added
to your loan. We will make a transfer from the Separate Account and the Fixed
Account into the Loan Account as collateral for the interest due. The amount
transferred is the amount by which the interest due exceeds the interest that
has been credited to the Loan Account. The transfer is made pro-rata from the
Separate Account Funds and the Fixed Account based on your amounts in each of
these accounts.
Loan Interest (Credited)
We will credit interest to the Loan Account on a daily basis. There will be two
credited rates. The standard portion of a loan will have a credited rate no less
than the rate charged for Indebtedness less 2.00%. The preferred portion will
have a credited rate no less than the rate charged for Indebtedness less 0.00%.
The rate charged for Indebtedness is 8.00%, as described above.
In Policy Years 1 through 5, we will apply the standard rate to the entire Loan
Account. In Policy Years 6 through 10, we will apply the preferred rate to the
value in the Loan Account up to 10% of the Accumulated Value. For the amount in
excess of 10% of the Accumulated Value, we will apply the standard rate. In
Policy Years 11 and later, we will apply the preferred rate to the entire Loan
Account.
Loan Repayment
A loan may be repaid in full or in part at any time while the Policy is in force
and the Insured is alive. When you repay part or all of a loan, we will transfer
an amount equal to the amount you repay from the Loan Account to the Separate
Account and Fixed Account based on the Premium allocation instructions on
record.
If you make a Premium payment which exceeds your Planned Premium Payment, and
your Policy has an outstanding loan balance, the payment will be divided into
two parts. The portion of the payment equal to the Planned Premium Payment will
be applied as a Premium payment. The portion of the payment in excess of the
Planned Premium Payment will be applied toward the repayment of your loan.
OTHER INFORMATION
Pan-American
Pan-American Assurance Company ("Pan-American" or the "Company"), 601 Poydras
Street, P.O. Box 60219, New Orleans, LA 70130-0219 was incorporated on May 18,
1981, under the laws of the state of Louisiana. Pan-American is licensed to do
business in the District of Columbia, Puerto Rico, and all states except Alaska,
Idaho, Iowa, Maine, Massachusetts, New Hampshire, New York, Rhode Island, South
Dakota, Vermont, and Wyoming.
Riders
There are a number of riders that are available in conjunction with the Policy.
Some riders may not be available in your state. Ask your Registered
Representative for information on availability.
Terminal Illness Accelerated Benefit Rider. If the Insured is
terminally ill, and you have elected the Terminal Illness Accelerated Benefit
rider, we will pre-pay a portion of the Death Benefit. You can only elect to
have a distribution made one time under the rider. There is no monthly charge
for this rider, but there is a charge upon acceleration.
You can choose an amount which is equal to the lesser of $250,000 or 50% of the
then determined Death Benefit, less any outstanding Indebtedness. This Benefit
is paid to the Owner in a lump sum or under one of the Settlement Options
described below.
The amount of the Terminal Illness Accelerated Benefit is accumulated at the
loan interest rate and is deducted from the Death Benefit paid and the amount
available for loans and withdrawals.
The receipt of a Terminal Illness Accelerated Benefit amount may adversely
affect the recipient's eligibility for Medicaid or other governmental benefits
or entitlements.
Additional Insured Rider. You can elect term insurance on the life of
the insured or another insured. If you have elected this rider, we will pay the
Additional Insured Amount upon proof that the additional insured died during the
term period. The proceeds will be paid to the beneficiary of the rider. There is
a charge for this rider shown on your Policy Schedule.
Dependent Children Insurance Rider. You can elect term insurance on
your dependent children. We will pay the dependent child's benefit upon proof
that a dependent child died before the dependent child's 25th birthday and
termination of the rider. The benefit is reduced for younger ages, as described
in the rider. There is a charge for this rider shown on your Policy Schedule.
Disability Benefit Payment Rider. If you elect this rider we will
provide one of the following after the Insured's total disability has continued
for 6 consecutive months and a claim for total disability has been approved by
us.
1. If total disability starts before age 60, we will credit the
disability benefit amount to the value of the Policy on each
Monthly Anniversary Day, as shown on your Policy Schedule,
while total disability continues.
2. If total disability starts on or after age 60 but before age
65, we will credit the disability benefit amount to the value
of the policy on each Monthly Anniversary Day prior to age 70
while total disability continues.
There is a charge for this rider shown on your Policy Schedule.
Guaranteed Insurability Rider. If you elect this rider, we will
increase the Specified Amount in your Policy, subject to the terms of the rider.
No evidence of insurability will be required. There is a charge for this rider
shown on your Policy Schedule.
Paid-Up Insurance
At any time after the Right to Examine Policy Period, the Owner may request
that the Policy be converted into reduced paid-up insurance. Once the Policy is
converted, there is no further investment in the Separate Account. The election
of paid-up insurance is a permanent one. The paid-up insurance is payable on the
same conditions as the Insured's Death Benefit, but for a reduced amount. The
reduced amount is the amount the Cash Surrender Value, less any Indebtedness,
will buy as a single Premium at the attained age of the Insured. The Cash
Surrender Value of the paid-up insurance is based on the gender distinct 1980
CSO Smoker or Nonsmoker Mortality Table, Age Nearest Birthday, and interest at
3%.
Optional Methods of Settlement
Any proceeds payable under the Policy will be paid in one sum unless otherwise
elected. The following Settlement Options are available:
1. Proceeds left at interest;
2. Payments for a Fixed Period;
3. Payments for a Fixed Amount;
4. Life Income Payments.
Distributors
The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, who are Registered Representatives of broker- dealers which are
registered under the Securities Act of 1934 and are members of the National
Association of Securities Dealers, Inc.
Pan-American Financial Services, Inc. serves as the distributor for the
Policies. Pan-American Financial Services, Inc. is located at Pan-American Life
Center, 601 Poydras Street, New Orleans, LA 70130. Registered Representatives
will be paid commissions upon the sale of the Policy.
Suspension of Payments or Transfers
We may be required to suspend or postpone any payments or transfers involving a
Separate Account Fund when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the Separate
Account Funds is not reasonably practicable or Pan-American cannot
reasonably value the shares of the Separate Account Funds; or
4. the Securities and Exchange Commission, by order, so permits for the
protection of Owners.
We may defer the portion of any transfer, amount payable or surrender, or Policy
loan from the Fixed Account for not more than six months.
Ownership
Control of Policy. The Owner shall be as shown in the application or
subsequent written endorsement. Subject to the rights of any irrevocable
Beneficiary and any assignee of record with us, all rights, options, and
privileges belong to:
1. you, if living; otherwise
2. any contingent Owner or Owners, if living; otherwise
3. the Insured.
We reserve the right to require the Policy for endorsement of any assignment,
loan, change of Beneficiary or ownership designation, surrender, amendment or
modification.
Consistent with the terms of the Beneficiary designation and any assignment
during the Insured's lifetime, you may:
1. assign or surrender your Policy;
2. make or repay a loan;
3. amend or modify your Policy with our consent; and
4. exercise any right, receive any benefit, and enjoy any privilege provided
in the Policy.
If the Policy is owned jointly by two or more parties, all transactions require
the signature, consent or other necessary requirements of all such parties.
However, telephone transfers and Premium allocation instructions will be
accepted from any Owner unless otherwise directed.
Assignment. An assignment will be accepted by us only if it is made in
writing and filed with us at our Home Office. Assignments may require that the
form be executed before a notary. Assignments require the consent of any
irrevocable Beneficiary.
Beneficiary
Designation. The application contains the Beneficiary(ies) and their
designated class. Any payments made to the Beneficiary(ies) will be made
according to their class. When there is more than one Beneficiary of the same
class, payments will be shared equally among them unless otherwise stated.
Death of a Beneficiary. If a Beneficiary dies before the Insured, the
payments will be made to:
1. any Beneficiary(ies) of that class, if living; otherwise
2. any Beneficiary(ies) of the next class, if living; otherwise
3. the Owner, if living; otherwise
4. the estate of the Owner.
If a Beneficiary dies within 15 days after the Insured but before proof of the
Insured's death is received by us, payments will be made as though the
Beneficiary had died before the Insured.
Change of Beneficiary. You may change any Beneficiary at any time
during the Insured's lifetime unless otherwise provided in the previous
designation. The new designation must be made by a signed notice in satisfactory
form to our Home Office. The change will take effect on the date the notice was
signed subject to any action taken by us before recording the change.
Executive Officers and Directors
Position(s)
Held With Principal Occupations During
Name and Address Age Pan-American Past Five Years
George Frank Purvis, Jr. 86 Senior President-Chairman Emeritus,
Pan-American Assurance Company Vice Pan-American Life Insurance Company
Pan-American Life Center President From 2/80 - 1/99; Chairman, Chief
Executive Office, 28th Floor Executive Officer, Pan-American Life
601 Poydras Street Life Insurance Company from 1974 - 1980
New Orleans, Louisiana 70130
Jan Sheridan Jobe 50 President, Director, President, Chief Executive
Pan-American Life Center Chief Officer, Pan-American Life Insurance
Executive Office, 28th Floor Executive Company from 8/99 - present;
601 Poydras Street Officer Director, President, Chief Operating Officer,
New Orleans, Louisiana 70130 Pan-American Life Insurance Company from 1/99 - 8/99;
President, Principal International, Principal
Financial Group from 1990 - 1/99;
Vice President of Group and Pension Sales, Principal
Financial Group from 1980 - 1990
Luis Isidro Ingles, Jr. 58 Vice Senior Vice President, Investments and Treasurer,
Pan-American Assurance Company President Pan-American Life Insurance Company from 1993 - present
Pan-American Life Center Investments Vice President, Securities, Pan-American Life
Executive Office, 28th Floor and Insurance Company from 1980 - 1993; Second Vice
601 Poydras Street Treasurer President, Securities, Pan-American Life
New Orleans, Louisiana 70130 Insurance Company from 1975 - 1980
Peggy Boudreaux Scott 49 Vice Senior Vice President, Chief Financial Officer, Pan-
Pan-American Assurance Company President American Assurance Company from 8/96-present; Executive
Pan-American Life Center Chief Vice President and Chief Financial Officer, Norvant
Executive Office, 28th Floor Financial Health, Inc., Winston-Salem, NC; Board of Directors,
601 Poydras Street Officer Partners Health Plan, Winston-Salem, NC; Board of
New Orleans, Louisiana 70130 Directors, Medical Diagnostic Services, Inc., Baton
Rouge, LA from 1998 - 1999
William Thiel Steen 50 Vice Senior Vice President, General Counsel and Corporate
Pan-American Assurance Company President, Secretary, Pan-American Life Insurance Company from
Pan-American Life Center General 8/96 - present; Vice President, Associate
Corporate Legal, 12th Floor Counsel and General Counsel, Pan-American Life Insurance Company
601 Poydras Street Corporate from 1993 - 1996; Second Vice President, Associate
New Orleans, Louisiana 70130 Secretary General Counsel, Taxation, Pan-American Life Insurance
Company from 1983 - 1993
Edward James Ray III 53 Vice Senior Vice President, Operations and Chief Actuary,
Pan-American Assurance Company President, Pan-American Life Insurance Company from 4/99- present;
Pan-American Life Center Operations Senior Vice President, Technical Services, Pan-American
Executive Office, 14th Floor and Chief Life Insurance Company from 1994 -1999; Vice President,
601 Poydras Street Actuary Actuary, Pan-American Life Insurance Company from
New Orleans, Louisiana 70130 1978 - 1994
Andrew Mark Erman 31 Vice Vice President and Actuary, Pan-American Life
Pan-American Assurance Company President Insurance Company from 8/00 - present; Director,
Pan-American Life Center and ING from 6/96 - 8/00
Entrepreneurial Team, 12th Floor Actuary
601 Poydras Street
New Orleans, Louisiana 70130
Voting
Pursuant to our view of present applicable law, we will vote the shares of the
Separate Account Funds at special meetings of shareholders in accordance with
instructions received from all Owners having a voting interest. We will vote
shares for which we have not received instructions and any shares that are ours
in the same proportion as the shares for which we have received instructions.
If the Investment Company Act of 1940 or any regulation thereunder is amended or
if the present interpretation of the Act changes so as to permit us to vote the
shares in our own right, we may elect to do so.
Disregard of Voting Instructions
We may, when required to do so by state insurance authorities, vote shares of
the Separate Account Funds without regard to instructions from Owners. We will
do this if such instructions would require the shares to be voted to cause a
Separate Account Fund to make, or refrain from making, investments which would
result in changes in the sub-classification or investment objectives of the
Separate Account Fund. We may also disapprove changes in the investment policy
initiated by Owners or trustees/directors of the Separate Account Funds, if such
disapproval:
1. is reasonable and is based on a good faith determination by us that the
change would violate state or Federal law;
2. results from a change which would not be consistent with the investment
objectives of the Separate Account Fund; or
3. varies from the general quality and nature of investments and investment
techniques used by others with similar investment objectives underlying
other variable contracts offered by us or of an affiliated company.
In the event we do disregard voting instructions, a summary of this action and
the reasons for such action will be included in the next semi-annual report to
Owners.
Legal Opinions
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut and Fort
Lauderdale, Florida has provided advice on certain matters relating to the
Federal securities and income tax laws in connection with the Policies.
Federal Tax Status
Note: The following description is based upon our understanding of current
Federal income tax law applicable to life insurance in general. We cannot
predict the probability that any changes in such laws will be made. Purchasers
are cautioned to seek competent tax advice regarding the possibility of such
changes. Section 7702 of the Internal Revenue Code of 1986, as amended ("Code"),
defines the term "life insurance contract" for purposes of the Code. We believe
that the policies to be issued will qualify as "life insurance contracts" under
Section 7702. We do not guarantee the tax status of the Policies. Purchasers
bear the complete risk that the Policies may not be treated as "life insurance"
under Federal income tax laws. Purchasers should consult their own tax advisers.
It should be further understood that the following discussion is not exhaustive
and that special rules not described in this Prospectus may be applicable in
certain situations.
Introduction. The discussion contained herein is general in nature and is not
intended as tax advice. Each person concerned should consult a competent tax
adviser. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion herein is based upon our understanding of current
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of those current Federal income
tax laws or of the current interpretations by the Internal Revenue Service.
We are taxed as a life insurance company under the Code. For Federal income tax
purposes, the Separate Account is not a separate entity from us and its
operations form a part of us.
Diversification. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable life insurance policies. The Code
provides that a variable life insurance policy will not be treated as life
insurance for any period (and any subsequent period) for which the investments
are not, in accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification of
the Policy as a life insurance contract would result in imposition of Federal
income tax to the Owner with respect to earnings allocable to the Policy prior
to the receipt of payments under the Policy. The Code contains a safe harbor
provision which provides that life insurance policies, such as these Policies,
will meet the diversification requirements if, as of the close of each quarter,
the underlying assets meet the diversification standards for a regulated
investment company and no more than fifty-five percent (55%) of the total assets
consist of cash, cash items, U.S. Government securities and securities of other
regulated investment companies. There is an exception for securities issued by
the U.S. Treasury in connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
Section 1.817-5), which established diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these Regulations, all securities of the same
issuer are treated as a single investment. The Code provides that, for purposes
of determining whether or not the diversification standards imposed on the
underlying assets of variable contracts by Section 817(h) of the Code have been
met, "each United States government agency or instrumentality shall be treated
as a separate issuer." We intend that each portfolio underlying the Policies
will be managed by the investment managers in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the Separate Account will cause the owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the policy owner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the owner to be
considered the owner of the assets of the Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively, resulting in you being retroactively
determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, we reserve the right to modify the Policy
in an attempt to maintain favorable tax treatment.
Tax Treatment of the Policy. The Policy has been designed to comply with the
definition of "life insurance" contained in Section 7702 of the Code. Although
some interim guidance has been provided and proposed regulations have been
issued, final regulations have not been adopted. Section 7702 of the Code
requires the use of reasonable mortality and other expense charges. In
establishing these charges, we have relied on the interim guidance provided in
IRS Notice 88-128 and proposed regulations issued on July 5, 1991. Currently,
there is even less guidance as to a policy issued on a substandard risk basis
and thus it is even less clear whether a policy issued on such basis would meet
the requirements of Section 7702 of the Code.
While we have attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with our interpretations of Section 7702 that were made
in determining such compliance. In the event the Policy is determined not to so
comply, it would not qualify for the favorable tax treatment usually accorded
life insurance policies. You should consult your own tax advisers with respect
to the tax consequences of purchasing the Policy.
Policy Proceeds. The tax treatment accorded to loan proceeds and/or surrender
payments from the Policies will depend on whether the Policy is considered to be
a MEC. (See "Tax Treatment of Loans and Surrenders.") Otherwise, we believe that
the Policy should receive the same Federal income tax treatment as any other
type of life insurance. As such, the Death Benefit thereunder is generally
excludable from the gross income of the Beneficiary subject to the provisions of
Section 101(a) of the Code; however, Qualified plans are typically an exception
to this. Also, you are not deemed to be in constructive receipt of the Cash
Surrender Value under a Policy, including increments thereon, until there is a
distribution of such amounts.
Federal, state and local, estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Owner or Beneficiary.
Tax Treatment of Loans and Surrenders. Section 7702A of the Code sets forth the
rules for determining when a life insurance policy will be deemed to be a MEC. A
MEC is a contract which is entered into or materially changed on or after June
21, 1988 and fails to meet the 7-pay test. A policy fails to meet the 7-pay test
when the cumulative amount paid under the policy at any time during the first 7
policy years exceeds the sum of the net level premiums which would have been
paid on or before such time if the policy provided for paid-up future benefits
after the payment of seven (7) level annual premiums. A material change would
include any increase in the future benefits or addition of qualified additional
benefits provided under a policy unless the increase is attributable to: (1) the
payment of premiums necessary to fund the lowest death benefit and qualified
additional benefits payable in the first seven policy years; or (2) the
crediting of interest or other earnings (including policyholder dividends) with
respect to such premiums.
Furthermore, any policy received in exchange for a policy classified as a MEC
will be treated as a MEC regardless of whether it meets the 7-pay test. However,
an exchange under Section 1035 of the Code of a life insurance policy entered
into before June 21, 1988 for the policy will not cause the policy to be treated
as a MEC if no additional premiums are paid.
Due to the flexible premium nature of the Policy, the determination of whether
it qualifies for treatment as a MEC depends on the individual circumstances of
each Policy.
If the Policy is classified as a MEC, then surrenders and/or loan proceeds are
taxable to the extent of income in the Policy. Such distributions are deemed to
be on a last-in, first-out basis, which means the taxable income is distributed
first. Loan proceeds and/or surrender payments, including those resulting from
the lapse of the Policy, may also be subject to an additional 10% Federal income
tax penalty applied to the income portion of such distribution. The penalty
shall not apply, however, to any distributions: (1) made on or after the date on
which the taxpayer reaches age 59 1/2; (2) attributable to the taxpayer becoming
disabled (within the meaning of Section 72(m)(7) of the Code); or (3) which are
part of a series of substantially equal periodic payments made not less
frequently than annually for the life (or life expectancy) of the taxpayer or
the joint lives (or joint life expectancies) of such taxpayer and his
Beneficiary.
If a Policy is not classified as a MEC, then any surrenders shall be treated
first as a recovery of the investment in the Policy which would not be received
as taxable income. However, if a distribution is the result of a reduction in
benefits under the Policy within the first fifteen years after the Policy is
issued in order to comply with Section 7702, such distribution may, under rules
set forth in Section 7702, be taxed as ordinary income to the extent of income
in the Policy.
Any loans from a policy which is not classified as a MEC will be treated as
Indebtedness of the owner and not a distribution. Upon complete surrender or
lapse of the policy, if the amount received plus loan indebtedness exceeds the
total premiums paid that are not treated as previously surrendered by the policy
owner, the excess generally will be treated as ordinary income.
Personal interest payable on a loan under a policy owned by an individual is
generally not deductible. Furthermore, no deduction will be allowed for interest
on loans under policies covering the life of any employee or officer of the
taxpayer or any person financially interested in the business carried on by the
taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Policy Owners should seek competent tax advice on the tax consequences of taking
loans, distributions, exchanging or surrendering any Policy.
Tax Treatment of Settlement Options. Under the Code, a portion of the settlement
option payments which are in excess of the death benefit proceeds are included
in the beneficiary's taxable income. Under a settlement option payable for the
lifetime of the beneficiary, the death benefit proceeds are divided by the
beneficiary's life expectancy and proceeds received in excess of these prorated
amounts are included in taxable income. The value of the death benefit proceeds
is reduced by the value of any period certain or refund guarantee. Under a fixed
payment or fixed period option, the death benefit proceeds are prorated by
dividing the proceeds over the payment period under the option. Any payments in
excess of the prorated amount will be included in taxable income.
Multiple Policies. The Code further provides that multiple MECs which are issued
within a calendar year period to the same owner by one company or its affiliates
are treated as one MEC for purposes of determining the taxable portion of any
loans or distributions. Such treatment may result in adverse tax consequences
including more rapid taxation of the loans or distributed amounts from such
combination of contracts. You should consult a tax adviser prior to purchasing
more than one MEC in any calendar year period.
Tax Treatment of Assignments. An assignment of a Policy or the change of
ownership of a Policy may be a taxable event. You should therefore consult a
competent tax adviser should you wish to assign or change the Owner of your
Policy.
Qualified Plans. The Policies may be used in conjunction with certain Qualified
Plans. Because the rules governing such use are complex, you should not do so
until you have consulted a competent Qualified Plans consultant.
Income Tax Withholding. All distributions or the portion thereof which is
includible in gross income of the Policy Owner are subject to Federal income tax
withholding. However, in most cases you may elect not to have taxes withheld.
You may be required to pay penalties under the estimated tax rules, if
withholding and estimated tax payments are insufficient.
Reports to Owners
We will at a minimum send to each Owner semi-annual and annual reports of the
Separate Account Funds. Following each Policy Anniversary, an annual statement
will be sent to each Owner. We may elect to send these more often. The statement
will show:
1. the current amount of Death Benefit payable under the Policy;
2. the current Accumulated Value;
3. the current Cash Surrender Value;
4. current Loans; and
5. all transactions previously confirmed.
The statement will also show Premiums paid and all charges deducted during the
Policy Year.
Confirmations will be mailed to Policy Owners within seven days of the
transaction of:
o the receipt of Premium;
o any transfer to or from any of the Separate Account Funds;
o any loan, interest repayment, or loan repayment;
o any surrender;
o exercise of the Right to Examine Policy privilege; and
o payment of the Death Benefit under the Policy.
Upon request you are entitled to a receipt of Premium payment.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the Distributor
are a party or to which the assets of the Separate Accounts are subject. We are
not involved in any litigation that is of material importance in relation to our
total assets or that relates to the Separate Account.
Experts
The statutory basis financial statements of Pan-American Assurance Company of
and for the years ended December 31, 2000 and 1999 included in this Prospectus
herein have been audited by , independent auditors, as stated in their report
appearing herein.
There are no financial statements for the Separate Account because as of the
date of this Prospectus, the Separate Account had not yet commenced operations.
Actuarial matters included in the Prospectus have been examined by _________,
whose opinion is filed as an exhibit to the registration statement.
Financial Statements
Our financial statements included herein should be considered only as bearing
upon our ability to meet our obligations under the Policies.
APPENDIX A
ILLUSTRATIONS OF POLICY VALUES
The following tables have been prepared to illustrate hypothetically how certain
values under a Policy change with investment performance over an extended period
of time. The tables illustrate how Accumulated Values, Cash Surrender Values and
Death Benefits under a Policy covering an insured of a given age on the Policy
Date, would vary over time if the Planned Premiums were paid annually and the
return on the assets in each portfolio were an assumed uniform gross annual rate
of 0%, ___ and ___. The values would be different from those shown if the
returns averaged ___, but fluctuated over and under those averages throughout
the years shown. The tables also show Planned Premiums accumulated at 5%
interest compounded annually. The hypothetical investment rates of return are
illustrative only and should not be considered a representation of past or
future investment rates of return. Actual rates of return for a particular
Policy may be more or less than the hypothetical investment rates of return
illustrated and will depend on a number of factors including the investment
allocations you make and prevailing rates. These illustrations assume that the
Premiums are allocated equally among the Separate Account Funds available under
the Policy, and that no amounts are allocated to the Fixed Account.
The illustrations reflect the fact that the net investment returns on the assets
held in the Separate Account Funds is lower than the gross after tax return of
the selected underlying Portfolios. The tables assume a simple arithmetic
average annual expense ratio of ___ of the average daily net assets of the
portfolios available. The tables also assumes that the waivers and/or
reimbursements, if any, for the available portfolios will continue for the
periods shown.
The illustrations also reflect the deduction of the Premium Expense and Monthly
Deduction for the hypothetical Insured. The Surrender Charge is reflected in the
Cash Surrender Value column. Our current cost of insurance charges and the
guaranteed maximum cost of insurance charges that we have a contractual right to
charge are reflected in separate illustrations on each of the following pages.
All the illustrations reflect the fact that no charges for Federal or state
income taxes are currently made against the Separate Account and assume no loan
amount or partial withdrawals/surrenders or charges for supplemental and/or
rider benefits.
The illustrations are based on our _________ rating class. Upon request, you
will be furnished with a comparable illustration based on the proposed Insured's
individual circumstances. Such illustrations may assume different hypothetical
rates of return than those illustrated in the following tables. Because the
Death Benefit values vary depending on the Death Benefit Option in effect,
benefit options are illustrated separately.
The illustrations show Accumulated Values that would result based upon the
hypothetical investment rates of return if Premiums are paid as indicated and
all Net Premiums are allocated to Separate Account Funds.
ILLUSTRATION OF POLICY VALUES
PAN-AMERICAN ASSURANCE
Male/Female Issue Age: ____
Preferred Non-Tobacco
Initial Specified Amount: __________
Death Benefit Option: _________
Planned Premium: __________
Values Projected at 10.00%
Net Net
---------------------------------------------- --------------------------
----------------- --------------
at Current Charges at Maximum Charges
---------------------------------------------- --------------------------
Yearly Accum Cash Surrender Death Cash Surrender Death
Age End of Year Premium Value Value Benefit Value Benefit
* In the absence of additional premium, the Policy would lapse. (1) Assumes that
no Policy loans have been made and no withdrawals have been made. (2) Assumes
that the Planned Premium is paid at the beginning of each year. Values would be
different if premiums are paid with a different frequency or in different
amounts.
The hypothetical investment rates shown above and elsewhere in this Prospectus
are illustrative only and should not be deemed a representation of past or
future investment results. Actual rates of return may be more or less than those
shown and will depend on a number of factors including the investment
allocations by you, prevailing rates and rates of inflation. The Death Benefit
and Cash Surrender Value for a Policy would be different from those shown if the
actual rates of return averaged 0%, ___ or ___ over a period of years but also
fluctuated above or below those averages for individuals Policy Years. No
representation can be made by us or the Separate Account Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of years.
APPENDIX B
EXAMPLES OF CALCULATION OF SURRENDER CHARGE
Charges for $3,000 Partial Surrender
Consider a Policy with $200,000 Specified Amount, with $10,000 in Accumulated
Value, with a $6,000 Surrender Charge, and with no previous Partial Surrenders.
If this Owner were to take a $3,000 Partial Surrender, the values would be as
follows:
Before Surrender After Surrender
- --------------------------------------- -------------------------- ------------
Specified Amount $200,000 $195,500
Accumulated Value $10,000 $5,500
Surrender Charge $6,000 (a) $4,500
Sum of all Previous Partial
Surrenders $0 $3,000
Partial Surrender Amount $3,000 N/A
Sum of the Partial Surrender Amount
and all Previous Partial Surrenders
$3,000 (b) $3,000
Exclusion Percentage 50% 50%
Cash Surrender Value $4,000 (d) $1,000
Exclusion Percentage multiplied by
the Cash Surrender Value $2,000 (c) $500
Charge Assessed on Surrender $1,500 (see below) N/A
- --------------------------------------- -------------------------- ------------
The Charge Assessed on Surrender is calculated, in symbols, as (a) x [(b) - (c)]
/ (d) = $6,000 x [$3,000 - $2,000] / $4,000 = $1,500. The charge will always be
at lease $25 but will never otherwise exceed the full Surrender Charge. The
Specified Amount is reduced by the sum of the $3,000 Partial Surrender Amount
and the $1,500 Charge Assessed on Surrender. The new Specified Amount is
$200,000 - ($3,000 + $1,500) = $195,500.
The Accumulated Value is also reduced by the sum of the $3,000 Partial Surrender
Amount and the $1,500 Charge Assessed on Surrender. The new Accumulated Value is
$10,000 - ($3,000 + $1,500) = $5,500. The Surrender Charge is reduced by the
$1,500 Charge Assessed on Surrender, $6,000 - $1,500 = $4,500. All future
Surrender Charges are the Surrender Charges shown on the schedule page, reduced
by the $1,500 assessed, but never less than zero. The Cash Surrender Value is
always calculated as the Accumulated Value less the Surrender Charge. After the
surrender, this would be $5,500 - $4,500 = $1,000.
Charges for $50,000 Decrease in Specified Amount Consider a Policy with $200,000
Specified Amount, with $10,000 in Accumulated Value, and with a $6,000 Surrender
Charge. If this Owner were to decrease his Specified Amount by $50,000, the
values would be as follows:
Before Decrease After Decrease
- -------------------------------- -------------------------- -------------------
Specified Amount $200,000 $150,000
Accumulated Value $10,000 $8,500
Surrender Charge $6,000 $4,500
Cash Surrender Value $4,000 $4,000
Charge Assessed on Decrease $1,500 (see below) N/A
- -------------------------------- -------------------------- -------------------
The Surrender Charge assessed on a decrease in Specified Amount made within five
years of the insurance segment is the pro-rata portion of surrender penalties in
effect at the time of the decrease. For this $50,000 decrease on a $200,000
Specified Amount, we will assess a surrender charge of $50,000 (decrease amount)
/ $200,000 (Specified Amount) * $6,000 (Surrender Charge) = $1,500. The
Specified Amount after the decrease is the Specified Amount before the decrease
($200,000) reduced by the amount of the decrease ($50,000) = $150,000. The
Accumulated Value after the decrease is the $10,000 Accumulated Value before the
decrease reduced by the $1,500 charge assessed = $10,000 - $1,500 = $8,500. The
Surrender Charge after the decrease is the $6,000 Surrender Charge before the
decrease reduced, pro-rata, by the 25% amount of the decrease = $6,000 - 25% *
$6,000 = $4,500. All future Surrender Charges are reduced by the same 25%. The
Cash Surrender Value is always calculated as the Accumulated Value less the
Surrender Charge. After the decrease, this would be $8,500 - $4,500 = $4,000. As
the charge reduces both the accumulated value and surrender charge in equal
amounts, the Cash Surrender Value is designed not to change after a decrease in
the Specified Amount.
PART II
UNDERTAKING TO FILE REPORTS
a. Subject to the terms and conditions of Section 15(d) of the Securities and
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority confined in that section.
b. Pursuant to Investment Company Act Section 26(e), Pan-American Assurance
Company ("Company") hereby represents that the fees and charges deducted under
the Policy described in the Prospectus, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company.
INDEMNIFICATION
Company shall indemnify and hold harmless any director, officer, and employee
now or hereafter serving the Company who was or is a party or is threatened to
be made a party to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, including any action by or in the right of the
Company, by reason of fact that he is or was a director, officer, employee,
trustee, or is or was serving at the request of the Company as a director,
officer, employee, trustee, or agent of another business, foreign or nonprofit
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, from and against all liability and expenses, including attorneys'
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding, to the full
extent permitted by applicable law. Such indemnification may, in the discretion
of such action, suit, or proceeding, subject to the provisions of any applicable
statute.
CONTENTS OF REGISTRATION STATEMENT
The Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 48 pages.
Undertakings to file reports.
The signatures.
The following exhibits.
A. Copies of all exhibits required by paragraph A of instructions for Exhibits
in Form N-8B-2.
1. Resolution of the Board of Directors of Pan-American Assurance Company (the
"Company") establishing Pan-American Variable Life Separate Account.
2. Not applicable.
3.(a) Not applicable.
(b) Form of Underwriting/Distribution Agreement between the Company and
Pan-American Financial Services, Inc.(to be filed by amendment).
(c) Schedule of Sales Commissions (to be filed by amendment).
4. Not applicable.
5.(a) Flexible Premium Adjustable Variable Life Insurance Policy.
(b) Form of Terminal Illness Accelerated Benefit Rider.
(c) Form of Additional Insured Rider.
(d) Form of Disability Benefit Payment Rider.
(e) Form of Guaranteed Insurability Rider.
(f) Form of Dependent Children Insurance Rider.
6.(a) Articles of Incorporation of the Company.
(b) By-laws of the Company.
7. Not applicable.
8.(a) Form of participation agreements (to be filed by amendment).
9. Not applicable.
10. Form of Policy Application (to be filed by amendment).
11. Not applicable.
B. Not applicable.
C. Not applicable.
2. Opinion and Consent of Counsel (to be filed by Amendment).
3. Not applicable.
4. Not applicable.
5. Not Applicable.
6. Consent of Actuary (to be filed by Amendment).
7. Consent of Independent Auditors (to be filed by Amendment).
SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the in the City of New Orleans, State of Louisiana, on this
6th day of February, 2001.
PAN-AMERICAN ASSURANCE COMPANY VARIABLE LIFE
SEPARATE ACCOUNT
(Registrant)
By:/s/ Jan S. Jobe
-----------------------------
PAN-AMERICAN ASSURANCE COMPANY
Attest: /s/ William T. Steen
--------------------------
Title: Senior Vice President
General Counsel and Corporate Secretary
------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/GEORGE FRANK PURVIS, JR Senior Vice-President 2/5/01
- -------------------------------- ---------
George Frank Purvis, Jr.
/S/JAN SHERIDAN JOBE President, Chief Executive Officer 2/6/01
- ------------------------------ ---------
Jan Sheridan Jobe
/S/LUIS ISIDRO INGLES, JR. Vice-President, Investments
and Treasurer 2/4/01
- ------------------------------ ---------
Luis Isidro Ingles, Jr.
/S/PEGGY BOUDREAUX SCOTT Vice-President,
Chief Financial Officer 2/4/01
- --------------------- ----------
Peggy Boudreaux Scott
/S/WILLIAM THIEL STEEN Vice-President,
General Counsel and 2/6/01
- ----------------------- Corporate Secretary ----------
William Thiel Steen
/S/ EDWARD JAMES RAY III Vice-President,
Operations and Chief Actuary 2/6/01
- ----------------------- ----------
Edward James Ray III
/S/ANDREW MARK ERMAN Vice-President
and Actuary 2/1/01
- ----------------------- ----------
Andrew Mark Erman
INDEX TO EXHIBITS
EX-99.A.1. Resolution of the Board of Directors of Pan-American Assurance
Company establishing Pan-American Variable Life Separate Account
EX-99.A.5.a. Flexible Premium Adjustable Variable Life Insurance Policy
EX-99.A.5.b. Form of Terminal Illness Accelerated Benefit Rider
EX-99.A.5.c. Form of Additional Insured Rider
EX-99.A.5.d Form of Disability Benefit Payment Rider
EX-99.A.5.e. Form of Guaranteed Insurability Rider
EX-99.A.5.f. Form of Dependent Children Insurance Rider
EX-99.A.6.a Articles of Incorporation of the Company
EX-99.A.6.b By-laws of the Company